Loosening the credit room will not increase inflation

VCN - The State Bank (SBV) has officially extended the credit limit by 1.5-2%. This equates to credit growth of 15.5-16% this year compared to the end of 2021, and the total credit limit for December will be around VND400 trillion.
Researching to loosen credit room, will liquidity be less tight? Researching to loosen credit room, will liquidity be less tight?
Loosening credit room - giving priority to banks with high liquidity and lower interest rates Loosening credit room - giving priority to banks with high liquidity and lower interest rates
Credit room has been eased, can enterprises solve the Credit room has been eased, can enterprises solve the "thirst" for capital?
Loosening the credit room will not increase inflation
Increasing the credit room is expected to help businesses recover production and business. Photo: Internet

Experts all assessed this as a necessary and timely action to solve the economy's liquidity, helping businesses add credit capital to maintain production and business from now until the end of the year and early 2023 because the SBV is also directed to ensure liquidity in all conditions, including prolonging refinancing for commercial banks, even extending through the Lunar New Year.

Economic expert Dr Le Xuan Nghia commented that this decision was made from a comprehensive and careful assessment of the benefits to the whole economy. Furthermore, the bank's reopening of the credit room will help businesses have more motivation to recover in the year-end period.

This expert also emphasized that increasing the credit room would not increase inflation because the State Bank has required credit to be poured into the production and business sectors, limiting the risk sectors.

In our country, many signals show that the pressure on interest rates tends to decrease, reducing inflation pressure. Moreover, the State Bank has applied many tools to control the money supply, not only by credit room but also by selling foreign currency to stabilize the exchange rate and pumping money through the open market (OMO). Therefore, the expansion of the credit room received much consensus that it would not negatively impact inflation.

According to economic expert Dr Can Van Luc, the State Bank decided to loosen the room at this time thanks to the fact that the external pressure on inflation, interest rate, and the exchange rate has eased a lot; domestic inflation is well controlled; liquidity of the banking system has improved with the population's deposit increasing again; and the huge need for capital to maintain, recover, and develop production and business of enterprises and people.

Although the distribution ratio for each bank has not been announced, the State Bank has stated the principle of increasing credit targets for credit institutions in the direction that credit institutions with better liquidity and lower interest rates will enjoy higher credit growth. This means that the commercial banks that have just cut lending rates will have an advantage. Some banks doing this work are Agribank, Vietcombank, HDBank, ACB, MB, and ABBank.

A bank representative said that disbursement is expected to be completed within a month to meet existing loan applications and, at the same time, aim capital to production and business activities, priority areas for economic recovery.

Although the above signals are positive, according to experts of SSI Securities Company, the pressure on the capital balance from commercial banks is excellent in that the liquidity in the system in the medium term has not been improved much due to the negative capital-credit gap.

An expert also said that loosening the credit room only solved liquidity for some businesses, so it was difficult to create any significant bounce at the end of this year.

Therefore, Luc suggested that credit institutions should actively balance mobilized capital, ensure liquidity, and ensure credit quality and efficiency.

Simultaneously, to increase the liquidity efficiency, he said that the Ministry of Finance needed to strongly open the capital channel from corporate bonds because this was an important medium-long-term capital source that helped businesses pay their due debt. In addition, ministries and local authorities have accelerated and effectively disbursed public investment, national target programs, and economic recovery support programs to reduce pressure on the demand for credit capital.

"The government needs to localize, quickly and completely solve the violations in the capital market recently, ensure the legitimate interests of investors, and regain the trust of the market, people, and businesses", said Luc.

By Huong Diu/ Ha Thanh

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